Whether or not you're a new investor, ETFs are probably new to you. Nearly half of all of these streamlined, low-cost portfolios have been introduced this year. When the bear market started seven years ago there were 30 of them; since the bulls began running in 2003, their numbers have exploded to more than 550.

Many of us, therefore, are in the process of transitioning our portfolios to incorporate more ETFs in place of traditional mutual funds, or adding ETFs to our other holdings. Our reasons are many: to trim expenses; to consolidate in a single account investments that might be spread among numerous mutual fund families; to avoid the risk that our managers will change or falter. One ETF Insider subscriber dropped me a note recently as she addressed this issue:

Tim, I'm totally in a Vanguard IRA. I've been following Dan Wiener's conservative growth portfolio model, somewhat modified. (Doing good!) How do I go about switching some money to ETFs? B.G.

Dan, the editor of The Independent Adviser for Vanguard Investors (and a friend of mine), focuses primarily on actively managed mutual funds in his model portfolios because he knows that some of Vanguard's top managers are index-beaters. But he's a believer in ETFs, and I think he would agree with this advice--in fact, I've asked him, and incorporated his ideas here:

If you're a Vanguard investor, as B.G. is, then the first step is to exploit Vanguard's own family of ETFs, most of which are clones of their existing index mutual funds with the added benefit of exceptionally low expenses. For example, the short-term investment-grade bond mutual fund he recommends in his conservative growth portfolio has an ETF analog, Vanguard Short-Term Bond ETF (BSV). It isn't exactly the same, but it's a close match. Vanguard Emerging Markets mutual fund is available as Vanguard Emerging Markets ETF (VWO). Dan himself recommends the emerging markets ETF over the open-end fund because of the fund's 0.5% front-end and back-end loads. Those loads can cost you a lot more than most brokerage fees for buying the ETF will.

Anytime you're examining this kind of transition, first determine what benchmark the mutual fund you own compares itself with. You can find that out in fund literature, e.g., the fund's prospectus, or from an analysis service like Morningstar. Virtually without exception, those benchmarks are available as purebred ETFs. For example, if the actively managed fund's benchmark is the Russell 2000, a popular small-cap index, the corresponding ETF is iShares Russell 2000 Index (IWM). You may decide that the index route, using ETFs, is your preferred strategy.

Of course, when you make this kind of transition, you make a trade-off. ETFs are index funds, and some active mutual fund managers consistently beat their indexes. But mutual funds have overhead that ETFs don't, including the cash they have to hold in reserve, whether to meet redemptions or because they haven't put it to work yet. The typical mutual fund sets aside 5% of assets in this manner; with ETFs, 100 cents of every dollar are put to work. In a bull market, having all your dollars invested is an advantage. When the markets turn down, of course, that cash holding may help preserve capital a bit.

I own every ETF in the ETF Insider Model Portfolios , but I also own a number of mutual funds that I've had for years. (My personal retirement portfolio is so similar to the ETF Insider Growth Model Portfolio that the performance of the two has been identical in recent months.) Like our subscribers, I'm always on the lookout for ways to exploit ETFs to make my portfolio more fully diversified, efficient and economical to own. Techniques like these are part of the research I do to identify ETFs that contribute the most to my, and your, total portfolio satisfaction.